The World Bank is predicting faster economic growth for Indonesia this year

The World Bank is predicting faster economic growth for Indonesia this year, confident that the nation's slowdown likely bottomed out in 2015.

In its January 2016 "Global Economic Prospects" report, the multilateral lender sees Indonesia's growth accelerating to 5.2 percent on average in the 2016-18 period after dropping to its lowest rate of 4.7 percent last year.

"This assumes implementation of a reform package announced by the government in September-October 2015 to unlock investment and boost productivity growth," the report said.

President Joko Widodo's administration released a series of economic packages last year in a bid to prop up a domestic economy that was being challenged by weaker exports, slower consumer purchasing power and a weakening currency.

The World Bank's optimism echoed similar sentiments from Bank Indonesia, which forecast economic growth to rebound this year at 5.2 percent-5.6 percent from a 4.7 percent-4.8 percent forecast for 2015.

However, the World Bank's report also noted that expected weak commodity prices for this year may require Indonesia to strengthen its fiscal institutions as well as broad its trade products.

"Weaker commodity prices would exacerbate the impact on commodity exporters" like Indonesia, Malaysia and Mongolia, the report said.

"On the revenue side, there is a need to broaden tax bases" for countries like Indonesia, Malaysia, Philippines, to "reduce reliance on commodity-related revenues."

The report also said commodity producers like Indonesia need to "enhance fiscal institutions to improve the management of fluctuations in natural-resource prices" to anticipate the decline in commodity prices.

Global growth

According to the report, weak growth among major emerging markets will likely continue weighing on global economic growth in 2016, but it said "economic activity should still pick up modestly to a 2.9 percent pace, from a 2.4 percent growth in 2015, as advanced economies gain speed."

"A slowdown in major emerging markets would dampen regional growth through strong trade linkages and increasingly through financial market integration. Econometric estimates indicate that spillovers could be sizable, with a one-off [but persistent] unexpected 1 percentage point decline in China’s growth lowering growth in the rest of Asia by 0.5-1.4 percentage points after two years," it said.

The World Bank said growth in China, the world's most populous nation, is forecast to retreat to 6.7 percent in 2016 from an estimated 6.9 percent in 2015.